Interesting New Paper by JC Spender

10 July 2006 at 4:31 am Nicolai Foss 4 comments

| Nicolai Foss |

One of the puzzles of business administration/management is that the fields of entrepreneurship and strategic management have existed, and continue to exist, in such relative separation. Intuitively, one would think of entrepreneurship — the identification and seizure of new opportunities for profit — as constituting the core of the strategic management field. This, however, is not the case. However, there are various indications that strategic management scholars are about to develop interest in entrepreneurship (e.g., work by Kim and Mahoney, Alvarez and Barney).

One specific indication is an excellent and highly recommended recent paper by JC Spender, “The RBV, Methodological Individualism, and Managerial Cognition: Practising Entrepreneurship.” Here is the Abstract:

If we consider Schumpeter’s methodological individualism and entrepreneurship, the ‘managerial cognition’ arguments can contribute new insights to the RBV discourse. I open by examining the links between resource inputs and firm outputs , and argue the types of rents implied by the RBV cannot arise or be sustained if these links are logical and explainable. The only rents then available are Marshallian quasi-rents arising from information asymmetry or the Ricardian rents from initial allocation, i.e., those of Porter’s analysis. Today’s RBV lacks the components necessary to create and manage the value at the core of Barney’s VRIO model. Causal ambiguity or uncertain inimitability might imply sustainable rents but clearly do not explain how the arise, any more than asserting the firm has dynamic capabilities does. To illustrate how value might be created and brought into the analysis, I look at Penrose’s model of managerial learning, primarily as an accessible instance of the epistemological approach proposed by Austrian economists such as Hayek, Kirzner, and Schumpeter. This concept of value creation parallels the sense-making concepts of the managerial cognition literature. I conclude that an alliance of BPS and MOC approaches can complement and so complete the RBV, synthesizing notions of value creation, heterogeneous and immobile resources, and endogenous growth into a dynamic theory of the firm. It balances rational choice and Schumpeterian entrepreneurship. To wrap this argument up, I discuss the theoretical and practical implications of the amended RBV.

Entry filed under: - Foss -, Austrian Economics, Entrepreneurship, Management Theory, Papers, Recommended Reading, Strategic Management.

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4 Comments Add your own

1. JC | 11 July 2006 at 9:16 pm

Why thank you Nicolai!

This paper, prepared for the AoM 2006 meeting, is availabe on my website. There’s also the interesting JMI 2006 volume 15 #2 which was not available when I wrote it.

the overall challenge is that I find myself puzzling at the interstices of an entrepreneurial theory of the firm – Schumpeter and Penrose style – and a knowledge-creating theory of the organization – such as implied by Simon’s notion of bounded rationality. I say ‘knoweldge-creating’ because Nonaka & Takeuchi were onto something important. Just what is more difficult.

For me the hinge is the handling of Knightian uncertainty. This inevitably attacks the notion of rationality in micro-economics and OT equally. But how is irrationality – or a-rationality – to be handled convincingly? That’s the $64,000 question.

I think I’m making progress – but who can tell? Recently I have been reading a couple of interesting things I would recommend to those interested in this particular endeavor:

Sautet, Frédéric E (2000) An Entrepreneurial Theory of the Firm. London: Routledge.

Stove, David C (1982) Popper and After: Four Modern Irrationalists. Oxford: Pergamon Press.

I am also open to any suggestions and guidance from fellow bloggers.
2. Peter Klein | 11 July 2006 at 11:13 pm

JC, you can certainly find a strong Knightian influence in many of the papers listed under “projects” above. And, as you know, the links between entrepreneurship and the theory of the firm are generating increasing attention. A forthcoming special issue of the Journal of Management studies, edited by Sharon Alvarez and Jay Barney, collects the papers from a recent conference titled “Why Do Entrepreneurial Firms Exist?” (no conference web page, but you can find some of the papers here).
3. JC | 12 July 2006 at 5:47 am

Ha! Many thanks Peter.

Richard Langlois’s paper is absolutely bang on – as I would expect. He steps up to dealing with ‘irrationality’ right at the end. But there’s more to be said.

Wow, what a group! I would have liked to be with you guys in October.

Are there more papers knocking around? I can only find yours and mentions of the others on their resumes.
4. JC | 12 July 2006 at 6:10 am

Under ‘projects’? I only see the title of your forthcoming book. Am I missing something?